U.S. Stocks Post Weekly Decline

President Donald Trump speaks to reporters before a security briefing at Trump National Golf Club in Bedminster, N.J., Thursday, Aug. 10, 2017. Evan Vucci, AP

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By Corrie Driebusch and Justin Yang
The Wall Street Journal

Updated Aug. 11, 2017 7:42 p.m. ET

U.S. stocks rose Friday but still notched their biggest weekly loss in months, as investors were shaken by disappointing earnings results and an escalation of threats between the U.S. and North Korea.

The rhetoric, which began late Tuesday and continued into Friday, interrupted stocks’ march higher and cracked the calm that has enveloped the market for months. The Dow Jones Industrial Average, which had been steadily hitting records, posted its biggest decline since May on Thursday, while the CBOE Volatility Index, known as Wall Street’s “fear gauge,” rose to its highest level of the year.

Markets recovered slightly Friday.

“As a portfolio manager, you say, ‘Do I think we’ll get a war out of this?'” said Torsten Slok, chief international economist at Deutsche Bank, referring to the back and forth between North Korea and President Donald Trump. “If the answer is ‘yes,’ then you better get defensive. If you think this is just rattling sabers, and it’s just words, then you could view this as a buying opportunity.”

The Dow industrials rose 14.31 points, or less than 0.1%, to 21858.32 on Friday. The S&P 500 added 3.11 points, or 0.1%, to 2441.32, ending the week down 1.4%, its biggest loss since March. Major stock indexes across Europe and Asia also posted weekly declines.

The escalation provided an excuse for a selloff many investors consider overdue, some investors and analysts said.

On average, the S&P 500 falls 5% or more every 10 weeks and the index falls 10% every 33 weeks, according to data analyzed by AllianceBernstein going back to 1928. It has been more than a year since the last 5% downdraft in stocks and more than 76 weeks since the stock market suffered a 10% loss.

“Given the great run we’ve had, seems like some sort of pullback wouldn’t be surprising,” said Michael Baele, managing director of investments at U.S. Bank Private Wealth Management.

The CBOE Volatility Index — a measure of investors’ expectations for swings in the S&P 500 over the next 30 days — surged Thursday to its highest level since U.S. Election Day. It slipped Friday but was up more than 50% for the week.

Investors said the week’s swings were as much a result of earnings as geopolitics.

Large retailers Macy’s and Kohl’s tumbled on Thursday after they reported another quarter of shrinking sales. Shares of J.C. Penney dropped 78 cents, or 17%, to $3.93 Friday after the department store’s second-quarter loss exceeded expectations.

Shares Snap fell 1.94, or 14%, to 11.83 after the Snapchat parent reported earnings late Thursday that missed analyst forecasts. On Thursday, fellow newly public company Blue Apron Holdings lost 18% after the meal-kit maker reported rising costs amid increased competition. The stock fell another 2 cents, or 0.4%, to 5.12 Friday.

Overall it has been a strong stretch for corporate profits. Companies in the S&P 500 are set to report stronger second-quarter earnings than analysts expected, according to FactSet, lifted by oil-and-gas companies benefiting from stabilizing oil prices and multinational firms profiting from a weaker dollar.

U.S. government bonds strengthened Friday as soft inflation data led investors to further scale back expectations for interest-rate increases from the Federal Reserve.

The yield on the benchmark 10-year Treasury note settled at 2.191%, its lowest close since June 26, compared with 2.211% Thursday and 2.269% last Friday. Yields fall when bond prices rise.

Investors bought bonds after the Labor Department said the consumer-price index increased 0.1% in July from the previous month.

Friday’s report was the latest in a string of lackluster inflation readings, which have surprised many investors who had entered the year betting on an upsurge in economic growth and inflation.

Federal-funds futures, used by investors to place bets on the Fed’s rate-policy outlook, on Friday showed a roughly 36% chance of a rate increase by the end of the year, down from 47% Thursday and 54% a month ago, according to CME Group data.